(Bloomberg) -- Japanese stocks were flat on Tuesday, stabilising after their early swings following US President Donald Trump comments he would enact tariffs on imports from Canada and Mexico next month. Trump’s pledge dashed hopes of a more moderate trade policy following a Wall Street Journal report.
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The Topix Index dipped 0.1% to 2,709.32 at the mid-day break Tokyo time, having fallen as much as 0.6% at one point. The Nikkei was up 0.1% at 38,951.77.
“I think it will be hard for investors to hold stocks with tariff exposure,” said Yoshitaka Suda, cross asset strategist at Nomura Securities. But Suda does not expect sharp falls in stock prices given that hedge funds had already reduced exposures to both global and Japanese stocks.
Carmakers, seen as the most vulnerable to tariffs because of significant exports to US from factories in Japan and Mexico, dropped, with Mazda Motor losing as much as 4.1%.
There will be temporary damage to the share prices of some car manufacturers that ship to the US from Mexico, says Yugo Tsuboi, chief strategist at Daiwa Securities. Unless it’s universal tariffs, it will not lead to a significant deterioration in sentiment that would weigh on broader Japanese stocks, he adds.
Despite the market’s swings, investors remain confident the Bank of Japan will go ahead with a widely-anticipated rate hike on Friday.
Money market instruments are pricing in more than 90% chance of a rate hike to 0.50%. Bank shares, however, were weaker, as investors took profits from their recent gains ahead of the BOJ’s policy meeting.
Chip-related shares were a bright spot, with the MSCI Japan semiconductor index up almost 1 percent, as some market players drew comfort from Trump’s silence on the issue of curbing chip exports to China.
ADVANCERS
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DeNA (2432) +4%; DeNA Stake Falls to 4.3%: SM Trust AM
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Disco (6146) +3.7%
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Ibiden (4062) +3.7%
DECLINERS
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Money Forward (3994) -4.2%
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Mazda (7261) -3.6%
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Kawasaki Heavy (7012) -3.6%
INSIGHTS
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20 of the 33 sector indexes on the Tokyo Stock Exchange advanced; Tokyo Stock Exchange TOPIX Other Products Index was the best performer, while Tokyo Stock Exchange TOPIX Oil & Coal Products Index fell the most
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The MSCI AC Asia Pacific Index was up 0.2%
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Topix Index is up 7.9% over the last year, vs. MSCI AC Asia Pacific Index up 11%
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Topix Index members are trading at 14.5 times their estimated earnings for the next 12 months